It’s a numbers game

It’s a numbers game

Squeezed by rising costs, cruise operators are changing how they deploy their fleets. Tony Peisley investigates the new factors controlling the business of itinerary planning

Whoever that cynic was who first said: “When they tell you ‘it’s not about the money’...it’s about the money” could have been talking about the dark art of cruise deployment and itinerary planning in the 21st century.

Except that it is not an art any more, it’s a science. The days of cruise line executives simply using their knowledge and gut instinct to deploy their ships are fading fast.

Just before he was elevated to Royal Caribbean Cruises Ltd president and COO, Royal Caribbean International president and CEO Adam Goldstein told me: “We now feed in all the relevant cost and revenue data and, if our computer analysis tells us to deploy a ship in a particular place, we need to have a very good reason before we would ignore that and send it somewhere else.”

The globalisation of the industry and the sheer size of the fleets involved, along with the escalating cost of fuel, the proliferation of environmental regulations and the never-ending geopolitical issues, have combined to change everything.

When Royal Caribbean began back in the 1970s, its three ships operated the same itineraries, starting the same days out of Miami year-in, year-out. It was a simple case of giving consumers exactly what they wanted.

Cruise companies will claim that passenger appeal is still the driving force for creating any itinerary but, whereas that was once the be-all and end-all of the decision-making process, there are so many other factors involved now that this passenger influence has clearly been diluted.

A couple of years ago, Royal Caribbean International decided to shift a ship away from Los Angeles. The local newspapers were full of complaints from past passengers who queried why the company would do that when the ships were sailing full. Royal Caribbean International’s point was simply that having full ships is not enough; it was moving the ship because it judged it could sail full somewhere else but with the passengers paying higher prices.

More recently, MSC Cruises was quick to redeploy its first ever year-round ship in the North American market back to the Mediterranean for summer 2015 because it saw an opportunity of higher yields from North Americans cruising in Europe instead of the Caribbean.

And what explained last year’s sudden decision by Norwegian Cruise Line and Princess Cruises to homeport in Houston? This is a port that had been abandoned by the cruise industry in favour of others such as Galveston, which are closer to the Caribbean and unaffected by the fog problems that occasionally afflict Houston and cause ship delays.

Norwegian’s president and CEO Kevin Sheehan made no attempt to dress the decision up as passenger-led. The multimillion-dollar incentive from the port was the deal clincher and he said the company would always be open to that kind of incentive as it covered crucial costs such as marketing to a new local source market.

It is, though, fair to say that for some premium and most luxury brands, the passenger viewpoint retains more influence on deployment decisions than it now does for mass-market contemporary brands.

For example, Celebrity Cruises president and CEO Michael Bayley says: “Our planning is based upon customer demand. The vast majority of our passengers are North Americans who want to come to Europe.” But, with the Emissions Control Areas in the Baltic and North Seas, fuel costs are set to increase sharply next year.

Bayley acknowledges the challenges associated with the new environmental realities. “We have to figure out how to maintain the itineraries they want. We can embrace the idea that this is better for the environment but, as a business, it is remarkably challenging to work out solutions to the economic consequences of burning this far more expensive fuel – marine gas oil (MGO) – which also has supply issues.

“In the short-term, at least, we are not going to change the itineraries, although it will certainly change the economics. Other companies might act differently, though.”

TUI Cruises CEO Richard Vogel says: “We will have to use MGO in Northern Europe so we need to see how much we have to charge passengers to make our cruises viable. We have two new ships coming with scrubbers and the latest exhaust cleaning technology. But we also have older ships so we have to decide where we deploy them. We have to send them where our passengers want to go but it will now depend on how much they are willing to pay to go there.”

Carnival UK CEO David Dingle takes a pragmatic view: “We have to live with the ECA fuel situation but I do think that some cruise capacity will drift away from Northern Europe. We have to become more fuel-economic and that means using ships more as destinations so that, instead of offering lots more ports of call, they visit fewer and sail slower. We are already seeing newbuilds optimised at slower speeds and this will make a huge difference to cost and itineraries.”

Holland America Line director of deployment and itinerary planning Simon Douwes remarks: “We have been using homeports closer to the itinerary ports of call. Changing from Amsterdam to Copenhagen for our Baltic cruises saved more than 1,000 nautical miles.”

This and other changes – such as operating more open jaw itineraries – have enabled HAL to reduce its fleet’s average cruise speed significantly – down from 15.7 knots in 2012 to below 13 in 2014.

This article appeared in the Itinerary Planning Special Report. To read the full article, you can subscribe to the magazine in printed or digital formats.

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Tony Peisley
By Tony Peisley
19 December 2014

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